SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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MICROTEL INTERNATIONAL, INC.
------------------------------------------------------------------------
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MICROTEL INTERNATIONAL, INC.
9485 HAVEN AVENUE, SUITE 100
RANCHO CUCAMONGA, CA 91730
July 24, 2002
Dear Stockholders:
You are cordially invited to attend the MicroTel International, Inc.
2002 annual meeting of stockholders that will be held on August 23, 2002 at
11:00 a.m., local time, at the headquarters of the company located at 9485
Haven Avenue, Suite 100, Rancho Cucamonga, California 91730. All holders of
our outstanding common stock as of the close of business on July 17, 2002 are
entitled to vote at the 2002 annual meeting.
Enclosed are a copy of the notice of annual meeting of stockholders, a
proxy statement and a proxy card. A current report on the business operations of
MicroTel International, Inc. will be presented at the meeting, and stockholders
will have an opportunity to ask questions.
We hope you will be able to attend the 2002 annual meeting. Whether or
not you expect to attend, it is important that you complete, sign, date and
return the proxy card in the enclosed envelope in order to make certain that
your shares will be represented at the 2002 annual meeting.
Sincerely,
/s/ Robert B. Runyon
Robert B. Runyon,
Secretary
MICROTEL INTERNATIONAL, INC.
9485 HAVEN AVENUE, SUITE 100
RANCHO CUCAMONGA, CALIFORNIA 91730
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 23, 2002
----------------------
NOTICE IS HEREBY GIVEN that the 2002 annual meeting of stockholders of
MicroTel International, Inc., a Delaware corporation, will be held at our
headquarters located at 9485 Haven Avenue, Suite 100, Rancho Cucamonga,
California, on August 23, 2002 at 11:00 a.m., local time, for the following
purposes:
1. To elect two Class III directors to our board of directors to
serve a three-year term; and
2. To transact such other business as may properly come before
the 2002 annual meeting or any adjournment or adjournments
thereof.
Our board of directors has fixed the close of business on July 17, 2002
as the record date for determining those stockholders who will be entitled to
notice of and to vote at the meeting. Only holders of our common stock at the
close of business on the record date are entitled to vote at the meeting.
Stockholders whose shares are held in the name of a broker or other nominee and
who desire to vote in person at the meeting should bring with them a legal
proxy.
By Order of the Board of Directors,
/s/ Robert B. Runyon
Robert B. Runyon, Secretary
Rancho Cucamonga, California
July 24, 2002
YOUR VOTE IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND
DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. Returning a signed proxy card will help us secure a quorum and avoid
the expense of additional proxy solicitation. If you later desire to revoke your
proxy for any reason, you may do so in the manner described in the attached
proxy statement.
MICROTEL INTERNATIONAL, INC.
9485 HAVEN AVENUE, SUITE 100
RANCHO CUCAMONGA, CALIFORNIA 91730
------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
AUGUST 23, 2002
------------------
VOTING AND PROXY
We are furnishing this proxy statement in connection with the
solicitation of proxies by our board of directors for use at the 2002 annual
meeting of stockholders to be held at 11:00 a.m. local time on August 23, 2002,
at our offices at 9485 Haven Avenue, Suite 100, Rancho Cucamonga, California
91730, and at any and all adjournments of the meeting. This proxy statement and
the accompanying notice of annual meeting and proxy card are first being mailed
to stockholders on or about July 31, 2002.
Our annual report to stockholders is being mailed to stockholders
concurrently with this proxy statement. The annual report is not to be regarded
as proxy soliciting material or as a communication through which any
solicitation of proxies is made. A proxy card is enclosed for your use. The
shares represented by each properly executed unrevoked proxy card will be voted
as directed by the stockholder with respect to the matters described in the
proxy card. If no direction is made, the shares represented by each properly
executed proxy card will be voted "for" each of the proposals listed on the
proxy card. Any proxy given may be revoked at any time prior to its exercise by
filing with our secretary an instrument revoking the proxy or by filing a duly
executed proxy card bearing a later date. Any stockholder present at the meeting
who has given a proxy may withdraw it and vote his or her shares in person if he
or she so desires. However, a stockholder who holds shares through a broker or
other nominee must bring a legal proxy to the meeting if that stockholder
desires to vote at the meeting.
At the close of business on July 17, 2002, the record date for
determining the stockholders entitled to notice of and to vote at the 2002
annual meeting, we had issued and outstanding 21,513,366 shares of common stock.
Only holders of record of our common stock at the close of business on the
record date are entitled to notice of and to vote at the annual meeting or at
any adjournments of the meeting.
Each share of our common stock issued and outstanding on the record
date entitles the holder of that share to one vote at the 2002 annual meeting
for all matters to be voted on at the meeting. The holders of a majority of our
shares of common stock issued and outstanding and entitled to vote at the
meeting, present in person or represented by proxy, shall constitute a quorum
for purposes of voting on the proposals.
Directors are elected by a plurality. Therefore, for proposal 1 (the
election of two Class III directors to our board of directors), the two nominees
receiving the highest number of votes will be elected. Abstentions and broker
non-votes will have no effect on proposal 1.
Votes cast at the meeting will be tabulated by the person or persons
appointed by us to act as inspectors of election for the meeting. The inspectors
of election will treat shares of voting stock represented by a properly signed
and returned proxy card as present at the meeting for purposes of determining a
quorum, without regard to whether the proxy card is marked as casting a vote or
abstaining. Likewise, the inspectors of election will treat as present for
purposes of determining a quorum, shares of voting stock represented by "broker
non-votes," that is, shares held in record name by brokers or nominees that are
represented at the meeting but with respect to which the broker or nominee is
not entitled to vote on a particular proposal.
We will pay the expenses of soliciting proxies for the 2002 annual
meeting, including the cost of preparing, assembling and mailing the proxy
solicitation materials. Proxies may be solicited personally, by mail or by
telephone, or by our directors, officers and regular employees who will not be
additionally compensated. We have no present plans to hire special employees or
paid solicitors to assist in obtaining proxies, but we reserve the option to do
so if it appears that a quorum otherwise might not be obtained. The matters to
be considered and acted upon at the 2002 annual meeting are referred to in the
preceding notice and are discussed below more fully.
INFORMATION ABOUT OUR BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD
BOARD OF DIRECTORS
Our business, property and affairs are managed under the direction of
our board. Directors are kept informed of our business through discussions with
our executive officers, by reviewing materials provided to them and by
participating in meetings of our board and its committees.
Our bylaws provide that our board of directors shall consist of at
least four directors. Our board is divided into three classes of directors:
Class I, Class II and Class III. The term of office of each class of directors
is three years, with one class expiring each year at our annual meeting of
stockholders. We currently have three directors on our board, with one vacancy.
Our current board consists of one Class II director whose term expires at our
2004 annual meeting and two Class III directors whose terms expire at our 2002
annual meeting.
During 2001, our board held a total of two meetings and took action by
unanimous written consent on twelve occasions. Each incumbent director attended
at least 75% of the aggregate of the total number of meetings of the board and
the total number of meetings held by all committees of the board on which he
served.
2
BOARD COMMITTEES
Our board has an audit committee, an executive compensation and
management development committee and a nominating committee.
The audit committee held one meeting during 2001. The audit committee,
which is not governed by an audit committee charter, is responsible for, among
other things, considering and recommending to our board the appointment of our
independent auditors, examining the results of audits and quarterly reviews,
reviewing with the auditors the plan and scope of the audit and audit fees,
reviewing internal accounting controls, meeting periodically with our
independent auditors and monitoring financial aspects of our operations. Since
June 26, 1999, this committee has been composed of Laurence P. Finnegan, Jr.,
who is "independent" as defined in the listing standards of the National
Association of Securities Dealers.
The executive compensation and management development committee, which
we also refer to as our compensation committee, held three meetings and took
action by written consent on five occasions during 2001. The compensation
committee is responsible for reviewing and approving base salaries, bonuses and
incentive awards for all executive officers, reviewing and establishing the base
salary, bonuses and incentive awards for our chief executive officer, and
reviewing, approving and recommending to the board of directors the content,
terms and conditions of all employee compensation and benefit plans, or changes
to those plans. Since June 26, 1999, this committee has been composed of Robert
B. Runyon and Laurence Finnegan.
The nominating committee selects nominees for our board. Since 2000,
the nominating committee has been composed solely of Robert B. Runyon. The
nominating committee did not meet during 2001. The nominating committee will
consider nominees recommended by stockholders. The name of such nominees should
be forwarded to Mr. Runyon at our offices so that he may submit them to the
nominating committee for its consideration.
COMPENSATION OF DIRECTORS
Since January 1, 2001, each non-employee director has been entitled to
receive $12,000 per year as compensation for their services. We reimburse all
directors for out-of-pocket expenses incurred in connection with attendance at
board and committee meetings. We may periodically award options or warrants to
our directors under our option and incentive plans.
Mr. Runyon acts as a consultant to MicroTel in the areas of strategy
development, business and organization planning, human resources recruiting and
development and administrative systems. For 2001, Mr. Runyon became entitled to
receive $28,574 in consulting fees and reimbursement of expenses. During 2001,
we paid premiums of $3,656 for Mr. Runyon's health insurance.
On February 1, 2001, Mr. Oliva received an option to purchase 100,000
shares of common stock at $0.50 per share under our 1997 Stock Incentive Plan,
which option vested in two equal semi-annual installments on July 31, 2001 and
January 31, 2002 and expires on January 31, 2011.
3
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The names, ages and positions held by our directors, director nominees
and executive officers as of July 24, 2002 and their business experience are as
follows:
NAME AGE TITLES
---- --- ------
Carmine T. Oliva ....................... 59 Chairman of the Board, President, Chief
Executive Officer, Director and Director Nominee
Graham Jefferies........................ 45 Executive Vice President and Chief Operating
Officer of our Telecommunications Group and
Managing Director of various subsidiaries
Randolph D. Foote....................... 53 Senior Vice President, Chief Financial Officer
and Assistant Secretary
Robert B. Runyon (1)(2)................. 76 Secretary, Director and Director Nominee
Laurence P. Finnegan, Jr. (1)(3)........ 65 Director
-----------
(1) Member of the executive compensation and management development committee.
(2) Member of the nominating committee.
(3) Member of the audit committee.
CARMINE T. OLIVA has been Chairman of the Board, President and Chief
Executive Officer and a Class III director of MicroTel since March 26, 1997 and
of our subsidiary, XET Corporation, since he founded XET Corporation in 1983.
Mr. Oliva has been Chairman of the Board of XCEL Corporation Ltd since 1985, and
Chairman and Chief Executive Officer of CXR Telcom Corporation since March 1997.
From January 1999 to January 2000, Mr. Oliva served as a director of Digital
Transmission Systems Inc. (DTSX), a publicly held company based in Norcross,
Georgia. From 1980 to 1983, Mr. Oliva was Senior Vice President and General
Manager, ITT Asia Pacific Inc. Prior to holding that position, Mr. Oliva held a
number of executive positions with ITT Corporation and its subsidiaries over an
eleven-year period. Mr. Oliva attained the rank of Captain in the United States
Army and is a veteran of the Vietnam War. Mr. Oliva earned a B.A. degree in
Social Studies/Business from Seton Hall University in 1964 and an M.B.A. degree
in Business in 1966 from The Ohio State University.
GRAHAM JEFFERIES was appointed Executive Vice President and Chief
Operating Officer of our worldwide Telecommunications Group on October 21, 1999.
Mr. Jefferies served as Executive Vice President of MicroTel from April 1999
through October 1999. Mr. Jefferies has served as a director of CXR, S.A. since
March 1997, as Managing Director of Belix Power Conversions Ltd. since our
acquisition of Belix Power Conversions Ltd. in April 2000, as Managing Director
of XCEL Power Systems, Ltd. since September 1996 and as Managing Director of
XCEL Corporation. Ltd. since March 1992. Prior to joining us in 1992, he was
Sales and Marketing Director of Jasmin Electronics PLC, a major United Kingdom
software and systems provider, from 1987 to 1992. Mr. Jefferies held a variety
of project management positions at GEC Marconi from 1978 to 1987. Mr. Jefferies
earned a B.S. degree in Engineering from Leicester University, and has
experience in mergers and acquisitions. Mr. Jefferies is a citizen and resident
of the United Kingdom.
4
RANDOLPH D. FOOTE was appointed as our Senior Vice President and Chief
Financial Officer on October 4, 1999 and as our Assistant Secretary on February
12, 2001. Mr. Foote has been Vice President and Chief Financial Officer of CXR
Telcom Corporation and XET Corporation since March 2000 and has been Chief
Financial Officer of CXR Anderson Jacobson Inc., a California corporation that
is a subsidiary of CXR, S.A., since February 2000. Mr. Foote was the Corporate
Controller of Unit Instruments, Inc., a publicly traded semiconductor equipment
manufacturer, from October 1995 to May 1999. From March 1985 to October 1995,
Mr. Foote was the Director of Tax and Financial Reporting at Optical Radiation
Corporation, a publicly traded company that designed and manufactured products
using advanced optical technology. Prior to 1985, Mr. Foote held positions with
Western Gear Corporation and Bucyrus Erie Company, which were both publicly
traded companies. Mr. Foote earned a B.S. degree in Business Management from
California State Polytechnic University, Pomona and an M.B.A. degree in
Tax/Business from Golden Gate University.
ROBERT B. RUNYON has served as a Class III director since March 26,
1997 and was appointed as our Secretary on that date. He has been the owner and
principal of Runyon and Associates, a human resources and business advisory
firm, since December 1987. Prior to our merger with XET Corporation, Mr. Runyon
served XET Corporation both as a director since August 1983 and as a consultant
in the areas of strategy development and business planning, organization, human
resources and administrative systems. He also has consulted for companies in
environmental products, power supplies and architectural services sectors in
these same areas. From 1970 to 1978, Mr. Runyon held various executive positions
with ITT Corporation, including Vice President, Administration of ITT Grinnell,
a manufacturing subsidiary of ITT. From 1963 to 1970, Mr. Runyon held executive
positions at BP Oil, including Vice President, Corporate Planning and
Administration of BP Oil Corporation, and director, organization and personnel
for its predecessor, Sinclair Oil Corporation. Mr. Runyon was Executive Vice
President, Human Resources at the Great Atlantic & Pacific Tea Company from 1978
to 1980. Mr. Runyon earned a B.S. degree in Economics/Industrial Management from
University of Pennsylvania.
LAURENCE P. FINNEGAN, JR. has served as a Class II director since March
26, 1997. In addition to being a director of XET Corporation from 1985 to March
1997, Mr. Finnegan was XET Corporation's Chief Financial Officer from 1994 to
1997. Mr. Finnegan has held positions with ITT (1970-74) as controller of
several divisions, Narco Scientific (1974-1983) as Vice President Finance, Chief
Financial Officer, Executive Vice President and Chief Operating Officer, and
Fischer & Porter (1986-1994) as Senior Vice President, Chief Financial Officer
and Treasurer. Since August 1995, he has been a principal of GwynnAllen
Partners, Bethlehem, Pennsylvania, an executive management consulting firm.
Since December 1996, Mr. Finnegan has been a director and the President of GA
Pipe, Inc., a manufacturing company based in Langhorne, Pennsylvania. From
September 1997 to January 2001, Mr. Finnegan served as Vice President Finance
and Chief Financial Officer of QuestOne Decision Sciences, an efficiency
consulting firm based in Pennsylvania. Since August 2001, Mr. Finnegan has
served as a director and the Vice President and Chief Financial Officer of
VerdaSee Solutions, Inc., a consulting and software company based in
Pennsylvania. Mr. Finnegan earned a B.S. degree in Accounting from St. Joseph's
University.
Our bylaws provide that the board of directors shall consist of at
least four directors. The board of directors is divided into three classes. The
term of office of each class of directors is three years, with one class
expiring each year at the annual meeting of stockholders. There are currently
three directors, one of which is a Class II director whose term expires in 2004,
and two of which are Class III directors whose term expires in 2002. Officers
are appointed by, and serve at the discretion of, our board of directors.
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EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides information concerning the annual and
long-term compensation for the years ended December 31, 2001, 2000 and 1999
earned for services in all capacities as an employee by our Chief Executive
Officer and each of our other executive officers who received an annual salary
and bonus of more than $100,000 for services rendered to us during 2001:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARD
-----
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------- ------------
Carmine T. Oliva.................. 2001 $250,010 $40,000 100,000 $4,821 (1)
President and Chief Executive 2000 $207,395 $80,000 -- $4,821 (1)
Officer 1999 $198,872 -- -- $4,821 (1)
Graham Jefferies.................. 2001 $142,639 $20,000 -- $7,697 (3)
Executive Vice President and 2000 $128,775 $35,000 -- $6,869 (3)
Chief Operating Officer of 1999 $114,192 -- 60,000 $5,116 (3)
Telecommunications Group (2)
Randolph D. Foote................. 2001 $130,005 $15,000 -- --
Senior Vice President, 2000 $103,754 $20,000 -- --
Chief Financial Officer (4) 1999 $ 23,267 -- 50,000 --
---------------
(1) Represents the dollar value of insurance premiums we paid with respect to
term life insurance for the benefit of Mr. Oliva's spouse.
(2) Mr. Jefferies was appointed Executive Vice President and Chief Operating
Officer of our worldwide Telecommunications Group on October 21, 1999. Mr.
Jefferies is based in the United Kingdom and receives his remuneration in
British pounds. The compensation amounts listed for Mr. Jefferies are shown
in United States dollars, converted from British pounds using the average
conversion rates in effect during the time periods of compensation.
(3) Represents contributions to Mr. Jefferies' retirement plan.
(4) Randolph D. Foote was appointed Senior Vice President and Chief Financial
Officer on October 4, 1999 and Assistant Secretary on February 21, 2001.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding options granted in
the year ended December 31, 2001 to the executive officers named in the summary
compensation table. We did not grant any stock appreciation rights in the year
ended December 31, 2001. This information includes hypothetical potential gains
from stock options granted in 2001. These hypothetical gains are based entirely
on assumed annual growth rates of 5% and 10% in the value of our common stock
price over the ten-year life of the stock options granted in 2001. These assumed
rates of growth were selected by the Securities and Exchange Commission for
illustrative purposes only and are not intended to predict future stock prices,
which will depend upon market conditions and our future performance and
prospects.
POTENTIAL
REALIZABLE VALUE
AT ASSUMED RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
GRANT OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAMED OFFICER DATE GRANTED (1) FISCAL YEAR (2) PER SHARE DATE 5% 10%
------------- ---- ------------ --------------- --------- ------------ ---- -----
Carmine T. Oliva...... 02/01/01 100,000 29.0% $0.50 01/31/11 $28,495 $72,212
Randolph D. Foote..... -- -- -- -- -- -- --
Graham Jefferies...... -- -- -- -- -- -- --
-------------------------
(1) Options vested in two equal semi-annual installments on July 31, 2001 and
January 31, 2002.
(2) Based on options to purchase 345,000 shares granted to our employees during
the year ended December 31, 2001.
(3) Calculated using the potential realizable value of each grant.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information regarding the value of
unexercised options held by the named executive officers as of December 31,
2001. None of the named executives acquired shares through the exercise of
options during 2001.
NUMBER OF
SECURITIES UNDERLYING VALUE ($) OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2001 DECEMBER 31, 2001 (1)
----------------- ---------------------
NAME UNEXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ------------- ----------- -------------
Carmine T. Oliva..... 180,633 50,000 -- --
Randolph D. Foote.... 50,000 -- 5,500 --
Graham Jefferies..... 126,287 -- 6,600 --
--------------
(1) Based on the last reported sale price of our common stock of $0.31 on
December 31, 2001 (the last trading day during 2001) as reported on the OTC
Bulletin Board(R), less the exercise price of the options.
7
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
CARMINE T. OLIVA
Under an employment agreement dated January 1, 1996, Carmine T. Oliva
was employed as Chairman, President and Chief Executive Officer of XET
Corporation for a term of five years at an annual salary of $250,000. In July
1996, Mr. Oliva voluntarily agreed to abate a portion of his annual salary in
connection with XET Corporation's salary abatement program then in effect. On
May 6, 1997, our board of directors voted to assume the obligations of XET
Corporation under this agreement in light of the appointment of Mr. Oliva to the
positions of Chairman of the Board, President and Chief Executive Officer of
MicroTel on March 26, 1997.
On October 15, 1997, we entered into a replacement agreement with Mr.
Oliva on substantially the same terms and conditions as the prior agreement. The
replacement agreement was subject to automatic renewal for three successive
two-year terms beginning on October 15, 2002, unless, during the required notice
periods (which run from August 15 to October 15 of the year preceding the year
in which a two-year renewal period is to begin), either party gives written
notice of its desire not to renew. The agreement provided that Mr. Oliva's
salary was to continue at the abated amount of $198,865 per annum until we
reported two consecutive profitable quarters during the term of the agreement or
any renewals thereof, at which time his salary was to increase to its
pre-abatement level of $250,000 per annum. Based on our unaudited quarterly
financial statements, this increase to $250,000 occurred effective as of
November 1, 2000.
As of January 1, 2001, we entered into a new employment agreement with
Mr. Oliva. The agreement is subject to automatic renewal for consecutive
two-year terms beginning on January 1, 2006, unless, during the required notice
periods (which run from September 1 to November 1 of the second year preceding
the year in which a two-year renewal period is to begin), either party gives
written notice of its desire not to renew. The agreement provides for a base
salary of $250,000 per year and states that Mr. Oliva is eligible to receive
merit or promotional increases and to participate in other benefit and incentive
programs we may offer.
If the board of directors makes a substantial addition to or reduction
of Mr. Oliva's duties, Mr. Oliva may resign upon written notice given within 30
days of the change in duties. Within 30 days after the effective date of a
resignation under these circumstances, we will be obligated to pay to Mr. Oliva
the value of three years of his annual salary or the value of his annual salary
that would have been due through January 1, 2006, whichever is greater.
If we terminate Mr. Oliva for cause, our obligation to pay any further
compensation, severance allowance, or other amounts payable under the agreement
terminates on the date of termination. If we terminate Mr. Oliva without cause
(including by ceasing our operations due to bankruptcy or by our general
inability to meet our obligations as they become due), we must provide him with
60 days' prior written notice. If the termination without cause occurs prior to
the expiration of the initial term of the agreement on December 31, 2005, Mr.
Oliva will be entitled to be paid his annual salary for three years following
the termination or until December 31, 2005, whichever is the longer period. If
the termination occurs during a renewal period, Mr. Oliva will be entitled to be
paid his annual salary through the expiration of the particular renewal period
or for two years, whichever is the longer period, and to be paid all other
amounts payable under the agreement.
We may terminate the agreement upon 30 days' written notice in the
event of a merger or reorganization in which our stockholders immediately prior
to the merger or reorganization receive less than 50% of the outstanding voting
shares of the successor corporation and in the event of a sale of all or
8
substantially all of our assets or a sale, exchange or other disposition of
two-thirds or more of our outstanding capital stock. If Mr. Oliva is terminated
without cause within two years following a change of control, then:
o if the termination occurs prior to the expiration of the initial
term of the agreement on December 31, 2005, Mr. Oliva will be
entitled to be paid his annual salary and all other amounts
payable under the agreement for three years following the
termination or until December 31, 2005, whichever is the longer
period, which amounts shall be payable at his election in a lump
sum within 30 days after the termination or in installments;
o if the termination occurs during a renewal period, Mr. Oliva will
be entitled to be paid his annual salary through the period ending
two years after the expiration of the particular renewal period,
and to be paid all other amounts payable under the agreement;
o Mr. Oliva will be entitled to receive the average of his annual
executive bonuses awarded to him in the three years preceding his
termination, over the same time span and under the same conditions
as his annual salary;
o Mr. Oliva will be entitled to receive any executive bonus awarded
but not yet paid;
o Mr. Oliva will be entitled to receive a gross-up of all
compensatory payments listed above so that he receives those
payments substantially free of federal and state income taxes; and
o Mr. Oliva will continue to receive coverage in all benefit
programs in which he was participating on the date of his
termination until the earlier of the end of the initial term or
renewal term in which the termination occurred and the date he
receives equivalent coverage and benefits under plans and programs
of a subsequent employer.
If Mr. Oliva dies during the term of the agreement, amounts payable
under the agreement to or for the benefit of Mr. Oliva will continue to be
payable to Mr. Oliva's designee or legal representatives for two years following
his death. If Mr. Oliva is unable to substantially perform his duties under the
agreement for an aggregate of 180 days in any 18-month period, we may terminate
the agreement by ten days' prior written notice to Mr. Oliva following the 180th
day of disability. However, we must continue to pay amounts payable under the
agreement to or for the benefit of Mr. Oliva for two years following the
effective date of the termination.
If the agreement is terminated for any reason, and unless otherwise
agreed to by Mr. Oliva and us, then in addition to any other severance payments
to which Mr. Oliva is entitled, we must continue to pay Mr. Oliva's annual
salary until:
o all obligations incurred by Mr. Oliva on our behalf, including any
lease obligations signed by Mr. Oliva related to the performance
of his duties under the agreement, have been voided or fully
assumed by us or our successor;
o all loan collateral pledged by Mr. Oliva has been returned to Mr.
Oliva; and
o all personal guarantees given by Mr. Oliva or his family on our
behalf are voided.
The agreement provides that we will furnish a life insurance policy on
Mr. Oliva's life, in the amount of $1 million, payable to Mr. Oliva's estate in
the event of his death during the term of the agreement and any renewals of the
agreement. This benefit is in return for, and is intended to protect Mr. Oliva's
9
estate from financial loss arising from any and all personal guarantees that Mr.
Oliva provided in favor of us, as required by various corporate lenders. This
benefit is also intended to enable Mr. Oliva's estate to exercise all of Mr.
Oliva's warrants and options to purchase shares of our common stock.
The agreement contains non-competition provisions that prohibit Mr.
Oliva from engaging or participating in a competitive business or soliciting our
customers or employees during the initial term and any renewal terms and for two
years afterward if termination is for cause or for one year afterward if
termination is without cause or following a change of control. The agreement
also contains provisions that restrict disclosure by Mr. Oliva of our
confidential information and assign ownership to us of inventions created by Mr.
Oliva in connection with his employment.
RANDOLPH D. FOOTE
On July 2, 2001, we entered into an employment agreement with Randolph
D. Foote at an initial annual salary of $130,000. The agreement is subject to
automatic renewal for two successive one-year terms beginning on July 2, 2004,
unless, during the required notice periods (which run from May 2 to July 2 of
the year preceding the year in which the renewal period is to begin), either
party gives written notice of its desire not to renew. Mr. Foote is to act as
Senior Vice President and Chief Financial Officer and is to perform additional
services as may be approved by our board of directors.
If the board of directors makes a substantial addition to or reduction
of Mr. Foote's duties, Mr. Foote may resign upon written notice given within 30
days of the change in duties. Within 30 days after the effective date of a
resignation under these circumstances, we will be obligated to pay to Mr. Foote
the value of one year of his annual salary or the value of his salary through
July 1, 2004, whichever is greater, within 30 days after the effective date of
the resignation.
If we terminate Mr. Foote for cause, our obligation to pay any further
compensation, severance allowance, or other amounts payable under the agreement
terminates on the date of termination. If we terminate Mr. Foote without cause
(including by ceasing our operations due to bankruptcy or by our general
inability to meet our obligations as they become due), we must provide him with
60 days' prior written notice. Mr. Foote will be entitled to be paid his annual
salary for one year following termination or through July 2, 2004, whichever is
longer, if termination occurs during the initial term, or otherwise to be paid
his annual salary through the expiration of the current renewal period, and to
be paid all other amounts payable under the agreement.
We may terminate the agreement upon 30 days' written notice in the
event of a merger or reorganization in which our stockholders immediately prior
to the merger or reorganization receive less than 50% of the outstanding voting
shares of the successor corporation and in the event of a sale of all or
substantially all of our assets or a sale, exchange or other disposition of
two-thirds or more of our outstanding capital stock. If Mr. Foote is terminated
without cause within two years following a change of control, then:
o Mr. Foote will be entitled to be paid in installments or, at his
election in a lump sum within 30 days after termination, his
annual salary and other amounts payable under the agreement for
1-1/2 years following termination or until July 2, 2004, whichever
is longer, if termination occurs during the initial term, or
otherwise to be paid through the expiration of the current renewal
period plus one additional year;
10
o Mr. Foote will be entitled to receive the average of his annual
executive bonuses awarded to him in the three years preceding his
termination, over the same time span and under the same conditions
as his annual salary;
o Mr. Foote will be entitled to receive any executive bonus awarded
to him but not yet paid; and
o Mr. Foote will continue to receive coverage in all benefit
programs in which he was participating on the date of his
termination until the earlier of the end of the initial or current
renewal term and the date he receives equivalent coverage and
benefits under plans and programs of a subsequent employer.
If Mr. Foote dies during the term of the agreement, amounts payable
under the agreement to or for the benefit of Mr. Foote will continue to be
payable to Mr. Foote's designee or legal representatives for one year following
his death. If Mr. Foote is unable to substantially perform his duties under the
agreement for an aggregate of 180 days in any 18-month period, we may terminate
the agreement by ten days' prior written notice to Mr. Foote following the 180th
day of disability. However, we must continue to pay amounts payable under the
agreement to or for the benefit of Mr. Foote for one year following the
effective date of the termination.
The agreement contains non-competition provisions that prohibit Mr.
Foote from engaging or participating in a competitive business or soliciting our
customers or employees during the initial term and any renewal terms and for one
year afterward. The agreement also contains provisions that restrict disclosure
by Mr. Foote of our confidential information and assign ownership to us of
inventions created by Mr. Foote in connection with his employment.
GRAHAM JEFFERIES
On July 2, 2001, we entered into an employment agreement with Graham
Jefferies at an initial annual salary of 100,000 British pounds (approximately
$141,000 at the then current exchange rates). The agreement is subject to
automatic renewal for two successive one-year terms beginning on July 2, 2004,
unless, during the required notice periods (which run from May 2 to July 2 of
the year preceding the year in which the renewal period is to begin), either
party gives written notice of its desire not to renew. Mr. Jefferies is to act
as Managing Director of XCEL Corporation, Ltd. and as Executive Vice President
and Chief Operating Officer of our Telecom Group and is to perform additional
services as may be approved by our board of directors. This agreement replaces a
substantially similar agreement that had been effective since May 1, 1998.
If the board of directors makes a substantial addition to or reduction
of Mr. Jefferies' duties, Mr. Jefferies may resign upon written notice given
within 30 days of the change in duties. Within 30 days after the effective date
of a resignation under these circumstances, we will be obligated to pay to Mr.
Jefferies the value of one year of his annual salary or the value of his salary
through July 1, 2004, whichever is greater, within 30 days after the effective
date of the resignation.
If we terminate Mr. Jefferies for cause, our obligation to pay any
further compensation, severance allowance, or other amounts payable under the
agreement terminates on the date of termination. If we terminate Mr. Jefferies
without cause (including by ceasing our operations due to bankruptcy or by our
general inability to meet our obligations as they become due), we must provide
him with 60 days' prior written notice. Mr. Jefferies will be entitled to be
paid his annual salary for one year following termination or through July 2,
2004, whichever is longer, if termination occurs during the initial term, or
otherwise to be paid his annual salary through the expiration of the current
renewal period plus one additional year, and to be paid all other amounts
payable under the agreement.
11
We may terminate the agreement upon 30 days' written notice in the
event of a merger or reorganization in which our stockholders immediately prior
to the merger or reorganization receive less than 50% of the outstanding voting
shares of the successor corporation and in the event of a sale of all or
substantially all of our assets or a sale, exchange or other disposition of
two-thirds or more of our outstanding capital stock. If Mr. Jefferies is
terminated without cause within two years following a change of control, then:
o Mr. Jefferies will be entitled to be paid in installments or, at
his election in a lump sum within 30 days after termination, his
annual salary and other amounts payable under the agreement for
1-1/2 years following termination or until July 2, 2004, whichever
is longer, if termination occurs during the initial term, or
otherwise to be paid through the expiration of the current renewal
period plus one additional year;
o Mr. Jefferies will be entitled to receive the average of his
annual executive bonuses awarded to him in the three years
preceding his termination, over the same time span and under the
same conditions as his annual salary;
o Mr. Jefferies will be entitled to receive any executive bonus
awarded but not yet paid; and
o Mr. Jefferies will continue to receive coverage in all benefit
programs in which he was participating on the date of his
termination until the earlier of the end of the initial or current
renewal term and the date he receives equivalent coverage and
benefits under plans and programs of a subsequent employer.
If Mr. Jefferies dies during the term of the agreement, amounts payable
under the agreement to or for the benefit of Mr. Jefferies will continue to be
payable to Mr. Jefferies' designee or legal representatives for one year
following his death. If Mr. Jefferies is unable to substantially perform his
duties under the agreement for an aggregate of 180 days in any 18-month period,
we may terminate the agreement by ten days' prior written notice to Mr.
Jefferies following the 180th day of disability. However, we must continue to
pay amounts payable under the agreement to or for the benefit of Mr. Jefferies
for one year following the effective date of the termination.
The agreement contains non-competition provisions that prohibit Mr.
Jefferies from engaging or participating in a competitive business or soliciting
our customers or employees during the initial term and any renewal terms and for
two years afterward if termination is for cause or for one year afterward if
termination is without cause or following a change of control. The agreement
also contains provisions that restrict disclosure by Mr. Jefferies of our
confidential information and assign ownership to us of inventions created by Mr.
Jefferies in connection with his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of our board has a relationship that constitutes an
interlocking relationship with executive officers and directors of another
entity.
12
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is provided by the executive compensation and management
development committee, which is also known as the compensation committee, of
MicroTel's board of directors to assist stockholders in understanding MicroTel's
objectives, policies and procedures in establishing its executive compensation
structure and system. The compensation committee is responsible for reviewing
and approving base salaries, bonuses and incentive awards for all executive
officers, reviewing and establishing the base salary, bonuses and incentive
awards for the chief executive officer, and reviewing, approving and
recommending to the board of directors the content, terms and conditions of all
employee compensation and benefit plans, or changes to those plans.
The compensation philosophy and policy of MicroTel is based upon four
central objectives:
o To provide an executive compensation structure and system that is
both competitive in the outside industrial marketplace and also
internally equitable based upon the weight and level of
responsibilities in the respective executive positions.
o To attract, retain and motivate qualified executives within this
structure, and reward them for outstanding
performance-to-objectives and business results through financial
and other appropriate management incentives.
o To align MicroTel's financial results and the compensation paid to
our executive officers with the enhancement of stockholder value.
o To structure MicroTel's compensation policy so that executive
officers' compensation is dependent, in one part, on the
achievement of its current year business plan objectives, and in
another part, on the long-term increase in company net worth and
the resultant improvement in stockholder value, and to maintain an
appropriate balance between short- and long-range performance
objectives over time.
MicroTel's compensation programs consist of base salary, an annual
incentive bonus, and the award of stock options and other equity-based
incentives. Base salary is targeted to recognize each executive officer's unique
value and historical contributions to the success of MicroTel in light of
industry salary norms. The compensation committee reviews the compensation of
the chief executive officer, and with the chief executive officer, the base
compensation of all other executive officers, on an annual basis to assure that
a competitive position is maintained.
Any annual incentive bonus is based upon a comparison of actual
performance against pre-established quantitative and qualitative performance
objectives derived from MicroTel's business plan and operating budgets, which
may include company, operating subsidiary/division and individual components.
To further align the financial interests of our executive officers with
those of MicroTel and its stockholders, our long-range executive incentive
programs are primarily equity-based and provide the opportunity for our
executive officers to earn stock options and consequently benefit, along with
all stockholders, from performance-driven increases in share value. The
compensation committee and/or the board of directors act as the manager of our
option plans and perform functions that include selecting option recipients,
determining the timing of option grant and whether options are incentive or
non-qualified, and assigning the number of shares subject to each option, fixing
the time and manner in which options are exercisable, setting option exercise
prices and vesting and expiration dates, and from time to time adopting rules
and regulations for carrying out the purposes of our plans.
13
MicroTel also maintains other executive benefits that we consider
necessary in order to offer fully competitive opportunities to its executive
officers. These include, without limitation, 401(k) retirement savings plans,
car allowances and employment agreements. The compensation committee continues
to monitor and evaluate MicroTel's executive compensation system and its
application throughout MicroTel's organization to assure that it continues to
reflect MicroTel's compensation philosophy and objectives.
MicroTel's employment contract with Carmine T. Oliva, Chairman and
Chief Executive Officer, was renegotiated as of January 1, 2001. The agreement
is based upon a five-year commitment, with three successive two-year automatic
renewals, predicated upon a mutual agreement between MicroTel and Mr. Oliva at
those times. Mr. Oliva's base salary is targeted to fairly recognize his unique
leadership skills and management responsibilities compared to similarly
positioned executives in the industry and general marketplace. The criteria for
measurement include data available from objective, professionally-conducted
market studies, integrated with additional competitive intelligence secured from
a range of industry and general market sources.
The compensation committee has determined that no increase in base
salary for Mr. Oliva will be considered until MicroTel's cash flow can be
significantly strengthened and maintained. However, Mr. Oliva, along with a
limited number of other senior executives, was awarded a modest discretionary
bonus, payable in installments in 2002, in recognition for his work in achieving
a net profit of $271,000 from continuing operations in 2001 despite a general
downturn in business activity in the telecommunications market during 2001 and
MicroTel's incurrence of approximately $608,000 in legal and accounting fees in
connection with a securities registration statement and amendments to various
prior periodic reports.
In order to assure strength and continuity in two critical executive
positions other than MicroTel's chief executive officer position, the employment
contract of Graham Jefferies, Executive Vice President and Chief Operating
Officer, was renegotiated, and an initial contract was awarded to Randolph
Foote, Senior Vice President and Chief Financial Officer. Both contracts became
effective on July 2, 2001, and are based upon a three-year commitment with two
successive one-year renewals, predicated upon mutual agreements between MicroTel
and the individual executives at those times.
Respectfully submitted,
Executive Compensation and Management
Development Committee
MicroTel International, Inc.
Robert B. Runyon, Chairman
Laurence P. Finnegan, Member
14
AUDIT COMMITTEE REPORT
The audit committee of the board of directors of MicroTel
International, Inc. discussed with MicroTel's independent auditors all matters
required to be discussed by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees." Prior to the inclusion and filing with
the Securities and Exchange Commission of the audited consolidated financial
statements in MicroTel's Annual Report on Form 10-K for the year ended December
31, 2001, the audit committee discussed with management and reviewed MicroTel's
audited consolidated financial statements. In addition, the audit committee
obtained from the independent auditors a formal written statement describing all
relationships between the auditors and MicroTel that might bear on the auditors'
independence consistent with Independence Standards Board Standard No. 1,
"Independent Discussions with Audit Committees," and discussed with the auditors
any relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence. Prior to the filing of the
Form 10-K with the Securities and Exchange Commission, and based on the review
and discussions referenced above, the audit committee recommended to the board
of directors that the audited consolidated financial statements be included in
the Form 10-K. The audit committee also recommended reappointment, subject to
stockholder approval, of the independent auditors, and the board of directors
concurred in such recommendation.
Respectfully submitted,
Audit Committee
MicroTel International, Inc.
Laurence P. Finnegan, Jr.
PRINCIPAL ACCOUNTING FIRM FEES
The following table sets forth the aggregate fees billed or expected to
be billed to us for services rendered to us for the year ended December 31, 2001
by our independent auditors, BDO Seidman, LLP:
Audit Fees $251,992 (1)
Financial Information Systems Design and
Implementation Fees --
All Other Fees $293,290 (2)(3)
--------------------------
(1) Includes fees for the audit of our annual financial statements for the year
ended December 31, 2001, and the reviews of the condensed financial
statements included in our quarterly reports on Forms 10-Q for the year
ended December 31, 2001.
(2) Includes fees for registration statements of $224,081, consulting and tax
returns of $52,938, and fees for other non-audit services.
(3) The audit committee has considered whether the provision of these services
is compatible with maintaining the auditor's independence.
15
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
stockholder return on our common stock, based on its market price, with the
cumulative total return on companies on the Nasdaq Stock Market (U.S.) and the
Nasdaq Telecom Index, assuming reinvestment of dividends for the period
beginning December 31, 1996 and ending December 31, 2001. This graph assumes
that the value of the investment in our common stock and each of the comparison
groups was $100 on December 31, 1996.
[printed graphic]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE TOTAL RETURN
12/97 12/98 12/99 12/00 12/01
----- ----- ----- ----- -----
MicroTel International, Inc. $ 100.00 $ 43.75 $ 29.20 $ 20.00 $ 20.67
Nasdaq Stock Market (U.S.) 122.48 172.68 320.89 193.01 153.15
Nasdaq Telecommunications 145.97 241.58 431.01 183.57 122.90
16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of July 17, 2002, a total of 21,513,366 shares of our common stock
were outstanding. The following table sets forth information as of that date
regarding the beneficial ownership of our common stock by:
o each person known by us to own beneficially more than five
percent, in the aggregate, of the outstanding shares of our common
stock as of the date of the table;
o each of our directors and director nominees;
o each named executive officer in the Summary Compensation Table
contained elsewhere in this document; and
o all of our directors, director nominees and executive officers as
a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated in the footnotes to the
table, we believe each security holder possesses sole voting and investment
power with respect to all of the shares of common stock owned by such security
holder, subject to community property laws where applicable. In computing the
number of shares beneficially owned by a security holder and the percentage
ownership of that security holder, shares of common stock subject to options,
warrants or preferred stock held by that person that are currently exercisable
or convertible or are exercisable or convertible into shares of common stock
within 60 days after the date of the table are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the percentage
ownership of any other person or group.
17
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER(1) TITLE OF CLASS OWNERSHIP OF CLASS CLASS
---------------------- -------------- ------------------ -----
Orbit II Partners, L.P...................... Common 3,015,685 (2) 14.02%
Carmine T. Oliva............................ Common 1,509,938 (3) 6.89%
Fortune Fund Ltd. Seeker III................ Common 1,260,600 (4) 5.54%
Robert B. Runyon............................ Common 338,206 (5) 1.56%
Laurence P. Finnegan, Jr.................... Common 202,231 (6) *
Graham Jefferies............................ Common 129,563 (7) *
Randolph D. Foote........................... Common 55,000 (8) *
All executive officers, directors and director
nominees as a group (5 persons).......... Common 2,234,938 (9) 9.97%
---------------
* Less than 1.00%
(1) Unless otherwise indicated, the address of each person in this table is c/o
MicroTel International, Inc., 9485 Haven Avenue, Suite 100, Rancho
Cucamonga, CA 91730. Messrs. Oliva, Jefferies and Foote are executive
officers of MicroTel. Messrs. Oliva, Runyon and Finnegan are directors of
MicroTel. Messrs. Oliva and Runyon are director nominees.
(2) Alan S. MacKenzie, Jr., David N. Marino and Joel S. Kraut are: the managing
partners of Orbit II Partners, L.P., a broker-dealer and member of the
American Stock Exchange; the managing members of MKM Partners, LLC, an NASD
member firm and member of the Pacific Stock Exchange; and general partners
of OTAF Business Partners, a general partnership that owns over 10% of the
outstanding membership interests in Blackwood Securities, LLC, an NASD
member firm. Excludes 7,500 shares of common stock held directly by Mr.
MacKenzie. The address for Orbit II Partners, L.P. is 2 Rector Street, 16th
Floor, New York, New York 10006.
(3) Includes 81,889 shares of common stock held individually by Mr. Oliva's
spouse, 230,633 shares of common stock underlying options, 125,000 shares
of common stock underlying warrants and 50,530 shares of common stock
underlying Series A Preferred Stock.
(4) Includes 250,000 shares of common stock underlying warrants and 1,010,600
shares of common stock underlying Series A Preferred Stock. Patrick
Siaretta, as fund manager, and Greg Fenlon, as fund administrator, each
have voting power and investment power over the shares of common stock
beneficially owned by Fortune Fund Ltd. Seeker III. The address for Mr.
Siaretta is Avenida Republica do Libano, 331, 04501-000, Sao Paulo, SP
Brazil. The address for Mr. Fenlon is Kaya Flamboyan #9, Willenstad,
Curacao, Netherlands Antilles.
(5) Includes 158,060 shares of common stock underlying options.
(6) Includes 158,060 shares of common stock underlying options.
(7) Includes 126,287 shares of common stock underlying options.
(8) Includes 50,000 shares of common stock underlying options.
(9) Includes 125,000 shares of common stock underlying warrants, 723,040 shares
of common stock underlying options, 81,889 shares of common stock held
individually by Mr. Oliva's wife and 50,530 shares of common stock issuable
upon conversion of Series A Preferred Stock.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERIES A PREFERRED STOCK AND WARRANT TRANSACTIONS
We sold an aggregate of 200 shares of Series A Preferred Stock for
$10,000 per share to Fortune Fund Ltd. Seeker III, or Fortune Fund, Rana General
Holding, Ltd., or Rana, and Resonance, Ltd., or Resonance. Fortune Fund, Rana
and Resonance, or the Series A Original Holders, were institutional investors
who participated in a private offering that had closings on June 29, 1998 and
July 9, 1998. At the time of the closings, the shares of Series A Preferred
Stock were convertible into common stock at the option of the Series A Original
Holders at per share conversion prices of $10,000 divided by $0.9375 and $0.875,
respectively, which prices were equal to $10,000 divided by the lesser of $1.26
and 100% of the arithmetic average of the three lowest closing bid prices over
the respective previous 40 trading days. The 200 shares of Series A Preferred
Stock were accompanied by warrants to purchase up to an aggregate of 1,000,000
shares of common stock at an exercise price of $1.25 per share.
Between June 29, 1998 and November 3, 1998, the prices at which shares
of our common stock were trading on the Nasdaq SmallCap Market generally had
declined. Specifically, the closing bid price of a share of common stock on June
29, 1998 was $0.90625, and the closing bid price of a share of common stock on
November 3, 1998 was $0.4375. Due to the decline in the prices at which shares
of our common stock were trading, the number of shares into which a share of
Series A Preferred Stock was convertible increased from 10,667 and 11,429 shares
at June 29, 1998 and July 9, 1998, respectively, to 24,615 shares at November 3,
1998. To avoid further significant dilution to our common stockholders that
could result from a continued decline in the trading prices of a share of our
common stock, we entered into an agreement with the Series A Original Holders on
November 3, 1998 that attempted to fix the conversion price of the Series A
Preferred Stock so that each share of Series A Preferred Stock would be
convertible into 20,000 shares of common stock.
The November 3, 1998 agreement provided that we would revise the
certificate of designations relating to the Series A Preferred Stock to provide
that: (i) the conversion price would be fixed at $10,000 divided by $0.50 for so
long as our common stock continued to be traded on the Nasdaq SmallCap Market
and we did not conduct a reverse split of our outstanding common stock; and (ii)
we would not exercise our redemption rights for the outstanding shares of Series
A Preferred Stock for six months. The agreement also provided that the existing
restriction on each Series A Original Holder's right to convert more than 20% of
the aggregate number of shares of Series A Preferred Stock originally purchased
by such holder in any 30-day period would be eliminated. Also, the agreement
provided that we would replace the existing warrants, which warrants had an
exercise price of $1.25 per share, with warrants that had an exercise price of
$0.75 per share.
We inadvertently failed to obtain the required approval of our common
stockholders and to file an amended certificate of designations to effectuate
the amendments to the certificate of designations that were contained in the
November 3, 1998 agreement. However, between November 18, 1998 and March 26,
1999, the Series A Original Holders converted shares of Series A Preferred Stock
into shares of common stock at the rate of 20,000 shares of common stock per
share of Series A Preferred Stock, as agreed to in the November 3, 1998
agreement. Use of the $10,000 divided by $0.50 conversion price in four of the
conversions resulted in the Series A Original Holders receiving an aggregate of
46,437 more shares of common stock than they would have received under the
original conversion price formula that was contained in the certificate of
designations. We have determined, however, that the excess shares were in fact
validly issued under Delaware law.
19
In May 1999, our common stock was delisted from the Nasdaq SmallCap
Market due to a failure to meet Nasdaq's minimum closing bid price listing
requirement, and our common stock began trading on the OTC Bulletin Board(R).
Based upon the terms of the November 3, 1998 agreement, the conversion price of
the Series A Preferred Stock reverted back to the floating conversion price
shown in the certificate of designations, which conversion price was $10,000
divided by the lesser of $1.26 and 100% of the arithmetic average of the three
lowest closing bid prices over the 40 trading days prior to a conversion.
Following the delisting of our common stock from the Nasdaq SmallCap
Market, the trading prices of our common stock declined. We became concerned
that continued use of the floating conversion price for the Series A Preferred
Stock would cause substantial additional dilution to our common stockholders and
that resale of a large volume of shares received upon conversion at the floating
conversion price of the Series A Preferred Stock would result in further
declines in the trading prices of shares of our common stock.
Fortune Fund had informally indicated to us its willingness to
establish a fixed conversion price and to hold its shares of Series A Preferred
Stock as a long-term investment. On December 15, 1999, we entered into an
agreement with Fortune Fund. Under the agreement, we and Fortune Fund agreed to
the establishment of a fixed conversion price of $10,000 divided by $0.20 for
the 20 shares of Series A Preferred Stock held by Fortune Fund. On December 15,
1999, the floating conversion price would have been $10,000 divided by $0.19
under the terms of the certificate of designations that was then in effect.
Rana and Resonance had not indicated to us that they would be willing
to continue to hold their shares of Series A Preferred Stock or their shares of
common stock issued upon conversion of Series A Preferred Stock. Orbit II
Partners, L.P., or Orbit, an institutional investor that had acquired 4.9% of
our outstanding common stock, indicated to us that Orbit would be willing to
purchase 34.5 of the shares of Series A Preferred Stock held by Rana and
Resonance and hold any shares received upon conversion of those shares as a
long-term investment, provided that Carmine T. Oliva, Samuel J. Oliva and Samuel
G. Oliva would purchase and hold for investment the remaining five shares of
Series A Preferred Stock held by Rana and Resonance. Carmine T. Oliva is our
President, Chief Executive Officer and Chairman of the Board. Samuel J. Oliva
and Samuel G. Oliva are the brother and son, respectively, of Carmine T. Oliva.
On December 23, 1999, we entered into agreements with Rana, Resonance,
Orbit and the Olivas. Under the December 23, 1999 agreements, Rana and Resonance
sold their respective remaining 12.5 and 27 shares of Series A Preferred Stock
and accompanying warrants to purchase an aggregate of 197,500 shares of common
stock to Orbit and the Olivas for an aggregate consideration of approximately
$400,000 in cash. The agreements also provided for the establishment of a fixed
conversion price of $10,000 divided by $0.1979, so that each share of Series A
Preferred Stock was to be convertible into 50,530 shares of common stock. On
December 23, 1999, each share of Series A Preferred Stock would have been
convertible into approximately 52,632 shares of common stock at a per share
conversion price of $10,000 divided by $0.19 if the December 23, 1999
modification to the conversion price had not occurred.
In addition, the December 23, 1999 agreements provided that all of the
outstanding warrants that had been issued to Rana and Resonance, including the
Series A Warrants that were being transferred from Rana and Resonance to Orbit
and the Olivas, would be replaced with warrants that had a per share exercise
price that was reduced from $0.75 per share to $0.25 per share and an expiration
date that was extended from May 22, 2001 to December 22, 2002.
20
On December 23, 1999, our board of directors resolved by unanimous
written consent that the warrant for the purchase of up to 250,000 shares of
common stock that had been issued to Fortune Fund upon its purchase from us of
shares of Series A Preferred Stock in the 1998 private placement would be
replaced with a warrant that had a per share exercise price that was reduced
from $0.75 per share to $0.25 per share and an expiration date that was extended
from May 22, 2001 to December 22, 2002. This replacement was intended to provide
Fortune Fund with warrants that had the same terms as the replacement warrants
received by Rana, Resonance, Orbit and the Olivas under the December 23, 1999
agreements.
We filed an amended certificate of designations with the Delaware
Secretary of State to give effect to the December 1999 agreements by fixing the
conversion price of the Series A Preferred Stock at $10,000 divided by $0.1979.
However, because we inadvertently failed to obtain approval of our common
stockholders for the amendment to the certificate of designations, the amendment
was invalid under the Delaware General Corporation Law. However, on June 30,
2000, Orbit converted 34.5 shares of Series A Preferred Stock into 1,743,285
shares of common stock based upon the $10,000 divided by $0.1979 per share
conversion price that we, Orbit and the other present and former holders of
Series A Preferred Stock believed to be in effect. This conversion resulted in
the issuance of 1,048,654 more shares of common stock than would otherwise have
been issued upon conversion of the 34.5 shares of Series A Preferred Stock under
the certificate of designations that was then in effect. We have determined,
however, that the excess shares were in fact validly issued under Delaware law.
In November 2000, we realized that the modifications to the conversion
price of the Series A Preferred Stock were invalid because we had inadvertently
failed to obtain common stockholder approval for the modifications to the
certificate of designations and had also inadvertently failed to file an
amendment reflecting the November 1998 modifications. Our board of directors
distributed proxy materials requesting that holders of our common stock and
Series A Preferred Stock approve an amendment to the certificate of designations
that provided for a fixed conversion price of $10,000 divided by $0.1979 and an
amendment to the certificate of incorporation that increased the authorized
shares of common stock from 25,000,000 to 50,000,000. Our common and Series A
Preferred stockholders approved the amendments at a special meeting that was
held on January 16, 2001. We filed the amendments with the Delaware Secretary of
State on January 22, 2001, so that after that date, each outstanding share of
Series A Preferred Stock was convertible into 50,530 shares of common stock.
OTHER TRANSACTIONS
We are or have been a party to employment and consulting arrangements
with related parties, as more particularly described above under the headings
"Compensation of Executive Officers," "Employment Contracts and Termination of
Employment and Change-in-Control Arrangements" and "Compensation of Directors."
In August 2000, Carmine T. Oliva and his spouse, Georgeann, provided a
limited personal guarantee and a waiver of spouse equity rights in order to
assist us in obtaining our credit facility with Wells Fargo Business Credit,
Inc. Our board of directors believed it was advantageous for us to obtain a new
credit line from a bank-related lending institution rather than from an
independent asset lender such as our previous lender, Congress Financial
Corporation. However, Wells Fargo Business Credit, Inc. was unwilling to provide
us with the credit line unless Mr. Oliva provided the guarantee and Mrs. Oliva
provided the waiver. In recognition of Mr. and Mrs. Oliva's agreement to risk
their personal net worth to provide the guarantee and waiver despite significant
risk based upon our prior history of losses, the executive compensation and
management development committee of the board of directors awarded and paid Mr.
Oliva special bonuses totalling an aggregate of $35,000. On January 26, 2001,
Wells Fargo Business Credit, Inc. released the guarantee.
21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our executive officers, directors and persons who beneficially own more
than 10% of a registered class of our securities to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. These officers, directors and stockholders are required by the
Securities and Exchange Commission regulations to furnish us with copies of all
reports that they file.
Based solely upon a review of copies of the reports furnished to us
during 2001 and thereafter, or any written representations received by us from
directors, officers and beneficial owners of more than 10% of our common stock
that no other reports were required, we believe that, during 2001, all Section
16(a) filing requirements applicable to our reporting persons were met.
PROPOSAL 1
ELECTION OF CLASS III DIRECTORS
Our bylaws provide that our board of directors shall consist of at
least four directors. Our board is divided into three classes of directors:
Class I, Class II and Class III. The term of office of each class of directors
is three years, with one class expiring each year at our annual meeting of
stockholders.
Our current board consists of one Class II director, Laurence P.
Finnegan, whose term expires at our 2004 annual meeting, and two Class III
directors, Carmine T. Oliva and Robert B. Runyon, whose terms expire at our 2002
annual meeting and who are named as nominees for election to serve a three-year
term expiring at our 2005 annual meeting or until they are succeeded by other
qualified directors who have been duly elected. We have one vacancy on our board
and are in the process of locating a suitable candidate to fill the vacancy.
The proxy holders intend to vote all proxies received by them for the
above nominees unless instructions to the contrary are marked on the proxy card.
If either Mr. Oliva or Mr. Runyon is unable or declines to serve as a director
at the time of the annual meeting, the proxies will be voted for any nominee or
nominees designated by our present board. However, the proxy holders may not
vote proxies for a greater number of persons than the number of nominees named
on the proxy card.
REQUIRED VOTE OF STOCKHOLDERS AND BOARD RECOMMENDATION
Directors are elected by a plurality vote of shares present in person
or represented by proxy at the meeting. This means that the director nominee
with the most votes for a particular slot on the board is elected for that slot.
In an uncontested election for directors, the plurality requirement is not a
factor.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION
OF CARMINE T. OLIVA AND ROBERT B. RUNYON AS CLASS III DIRECTORS.
22
OTHER MATTERS
The board knows of no matter to come before the annual meeting other
than as specified in this proxy statement. If other business should, however, be
properly brought before the meeting, the persons voting the proxies will vote
them in accordance with their best judgment.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, proposals by stockholders that are intended for inclusion in our proxy
statement and proxy card and to be presented at our next annual meeting must be
received by us by March 26, 2003 in order to be considered for inclusion in
our proxy materials relating to the next annual meeting. Such proposals shall be
addressed to our chief financial officer and may be included in next year's
annual meeting proxy materials if they comply with rules and regulations of the
Securities and Exchange Commission governing stockholder proposals. For all
other proposals by stockholders to be timely, a stockholder's notice must be
delivered to, or mailed and received at, our principal executive offices not
later than June 16, 2003. If a stockholder fails to notify us of any such
proposal prior to that date, our management will be allowed to use its
discretionary voting authority with respect to proxies held by management when
the proposal is raised at the annual meeting, without any discussion of the
matter in our proxy statement.
ANNUAL REPORT
A copy of our annual report on Form 10-K for the year ended December
31, 2001, as filed with the Securities and Exchange Commission, is available
without charge by writing to: MicroTel International, Inc., 9485 Haven Avenue,
Suite 100, Rancho Cucamonga, California 91730, Attention: Chief Financial
Officer
ALL STOCKHOLDERS ARE URGED TO COMPLETE, SIGN AND RETURN PROMPTLY THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
23
MICROTEL INTERNATIONAL, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 23, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Carmine T. Oliva and Randolph D. Foote,
or either of them individually, as the attorney, agent and proxy holder of the
undersigned, with the power to appoint his substitute, to represent and vote, as
designated below, all shares of common stock of MicroTel International, Inc.
(the "Company") held of record by the undersigned at the close of business on
July 17, 2002, at the 2002 annual meeting of stockholders to be held at the
Company's headquarters located at 9485 Haven Avenue, Suite 100, Rancho
Cucamonga, California 91730 on August 23, 2002, at 11:00 a.m. local time, and at
any and all adjournments thereof. The Company's board of directors recommends a
vote FOR each of the following proposals:
1. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to
below, except as marked vote for all nominees
to the contrary below listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list provided below.)
CARMINE T. OLIVA ROBERT B. RUNYON
2. In his discretion, the proxy holder is authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof.
THIS PROXY CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
CARD WILL BE VOTED FOR THE PROPOSALS INDICATED AND IN ACCORDANCE WITH THE
DISCRETION OF THE PROXY HOLDER ON ANY OTHER BUSINESS. ALL OTHER PROXIES
HERETOFORE GIVEN BY THE UNDERSIGNED IN CONNECTION WITH THE ACTIONS PROPOSED ON
THIS PROXY CARD ARE HEREBY EXPRESSLY REVOKED. THIS PROXY CARD MAY BE REVOKED AT
ANY TIME BEFORE IT IS VOTED BY WRITTEN NOTICE TO THE SECRETARY OF THE COMPANY,
BY ISSUANCE OF A SUBSEQUENT PROXY CARD OR BY VOTING AT THE ANNUAL MEETING IN
PERSON. HOWEVER, A STOCKHOLDER WHO HOLDS SHARES THROUGH A BROKER OR OTHER
NOMINEE MUST BRING A LEGAL PROXY TO THE MEETING IF THAT STOCKHOLDER DESIRES TO
VOTE AT THE MEETING.
Please mark, date, sign and return this proxy card promptly in the
enclosed envelope. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED:
____________________________________
(Signature of Stockholder(s))
____________________________________
(Print Name(s) Here)
____________________________________
Number of Common Shares
[ ] PLEASE CHECK IF YOU ARE PLANNING
TO ATTEND THE ANNUAL MEETING.